Testamentary substitutes and the right of election
New York Estates Powers and Trust Law (“EPTL”) Section 5-1.1-A provides a right of election for the surviving spouse to take a share of his or her spouse’s estate, no matter what the will provides. The current law pertaining to the right of election states that the elective share of the surviving spouse is the greater of one-third of the net estate, as augmented by the statute, or Fifty Thousand Dollars ($50,000). However, if the estate is less than Fifty Thousand Dollars ($50,000), the elective share is the value of the net estate.1 In computing the net estate, debts, administration expenses and reasonable funeral expenses are deducted, but all estate taxes are disregarded.2
The amount to which the spouse is entitled under the elective share is, of course, reduced by any interest which passes outright to the spouse, whether by the decedent’s will, testamentary substitute or intestacy.3
If a spouse exercises her right of election under the will, the election negates any interest which would have passed to the spouse by any means other than outright or absolutely, as though the surviving spouse had died on the same day as the decedent but prior to the decedent.4 For example, if the decedent’s will created a trust for the surviving spouse and the spouse exercised her right of election, the trust would be interpreted as though the surviving spouse died before the decedent.5
The right of election applies to probate assets and to other assets deemed “testamentary substitutes.”6 Testamentary substitutes include gifts causa mortis, gifts made in the year prior to the decedent’s death, Totten trust accounts, joint bank accounts, property held jointly or payable to another upon death, assets transferred by the decedent in which she retained the right to income for life, retirement accounts, assets in which the decedent held a general power of appointment and transfer-on-death (T/O/D) or payable-on-death (P/O/D) accounts or securities. These testamentary substitutes are added back into the net estate for purposes of calculating right of election of the surviving spouse.
1. Gifts causa mortis
Gifts made by the decedent in contemplation of death are considered testamentary substitutes.7
2. Gifts Within One Year of Death
Transfers of property made within one year of the death of the decedent to the extent that the decedent did not receive adequate and full consideration for the gift are considered testamentary substitutes.8
3. Totten Trust Accounts
Funds deposited, together with dividend and interest, in a bank account in the name of the decedent in trust for another person which remain on deposit as of the date of the decedent’s death are considered testamentary substitutes.9
4. Joint Bank Accounts
Money deposited after August 31, 1966, with a bank or savings and loan association, together with dividends and interest, in the name of the decedent and another person and payable on death to the survivor, which remain on deposit as of the date of the decedent’s death, are considered testamentary substitutes to the extend of the decedent’s contribution.10
5. Property Held Jointly Or Payable To Another On Death
Any disposition of property made after August 31, 1966, by the decedent and held at the decedent’s date of death by the decedent and another person as joint tenants with a right of survivorship or as tenants by the entirety, or property held by the decedent which is payable on the decedent’s date of death to a person other than the decedent or his or her estate, to the extent of the consideration furnished by the decedent.11
EPTL §5-1.1-A(b)(3) provides that United States Savings bonds and other United States obligations held jointly or payable upon death are included in the definition of testamentary substitutes. However, apparently mindful of the fact that such inclusion may conflict with federal regulations and may present constitutional issues, the legislature provided in EPTL §5-1.1-A(b)(7) that if any part of the section is preempted by federal law with respect to an item of property included in the net estate, any person who received that item is obligated to return it to the surviving spouse and is personally liable to the surviving spouse for the value of that item.
6. Property In Which Decedent Retained A Life Estate
Any disposition of property or contractual arrangement made by the decedent, in trust or otherwise, to the extent that after August 31, 1992 the decedent retained for her life the possession or enjoyment of or the right to income for life, or at the date of her death retained a right to revoke the disposition or power to consume, invade or dispose of the principal. However, this does not apply to any right which vested on or before August 31, 1992.12
Although a literal reading of EPTL § 5-1.1-A(b)(1)(F) would make it appear that life insurance is a testamentary substitute, in Estate of Boyd, the Nassau County Surrogate’s Court held that life insurance is not a testamentary substitute: “the Court feels constrained to construe the new statute, EPTL 5-1.1-A(b)(1)(F), such that life insurance contracts are to be considered excluded from the list of testamentary substitutes.” (See, Estate of Boyd, 161 Misc. 2d 191, 613 N.Y.S.2d 330 (Surr. Ct. Nassau Co. 1994). In Matter of Zupa, 48 A.D.3d 1036, 850 N.Y.S.2d 311 (4th Dept. 2008), the Court held that annuities are not insurance and would be considered testamentary substitutes.
7. Retirement Accounts
Any money, securities, or other property payable under a thrift, savings, retirement, pension, deferred compensation, death benefit, stock bonus or profit sharing plan, account, arrangement, system or trust. This section does not apply if the decedent designated the beneficiary of the plan benefits on or before September 1, 1992 and did not change the beneficiary designation thereafter. Also, certain plans are only included at half of their value.13
8. Property In Which Decedent Held A General Power Of Appointment
Any interest in property to the extent that the decedent held a general power of appointment in such property immediately before her death or which she released within one year of her death, or exercised in favor of any persons other than herself or her estate.14
9. Transfers of Securities
Transfers of securities by means of a “transfer-on-death” registration.
Waiver of Right of Election One may waive one’s statutory right of election in writing, acknowledged or proved in the manner required for the recording of a deed. See, EPTL §5-1.1-A(e)(2). For example, this could be done in a pre-nuptial or post-nuptial agreement.
Some recent cases have invalidated a surviving spouse’s right of election where the marriage was posthumous revoked ab initio because the decedent had lacked the capacity to enter into the marriage. See, Matter of Kaminester v. Foldes, 26 Misc. 3d 227, 888 N.Y.S.2d 385 (Surr. Ct. N.Y. Co. 2009). See, also, Campbell v. Thomas, 36 A.D.3d 576, 828 N.Y.S.2d 178 (2d Dept. 2007), after remand, 73 A.D.3d 103, 897 N.Y.S.2d 460 (2d Dept. 2010). In Matter of Berk, 71 A.D.3d 883, 897 N.Y.S.2d 475 (2d Dept. 2010), the court held that a triable issue of fact exists as to whether a surviving spouse who married a mentally incapacitated person who was incapable of consenting to the marriage would be determined to have forfeited the statutory right of election, so as to prevent her unjust enrichment.
When representing a surviving spouse, one should consider obtaining information as to the testamentary substitutes in order to make a determination as to whether the exercise of the right of election is warranted.